Just closed on long term bank loans on 3 properties with my kids

[Shiloh Lundahl]

To be honest, I was given a leg up in life by my mom when she told me that she had an account with $20,000 that was set aside for my college education. With that money I was able to get a bachelors degree which led me to getting a master’s degree (which I paid for) in social work which led me to opening up a private therapy practice that produces a comfortable living. 

I am very grateful to my mother who made those sacrifices for me and planned ahead in order to help me transition into adulthood. And because it was so helpful to me, I wanted to do the same for my children but I wanted to do it through incorporating real estate into the equation so that my kids could learn about real estate investing along the way.

Here are the detail:

Last year I created an LLC with my 9-year old daughter and we bought a house together in August. We had to repair a plumbing issue (which the insurance company ultimately paid for) and do some other fixes.

Purchase price 137k

Repairs I Paid for 4K

Hard money for 11 months 14k

Other holding costs 2k

Closing costs with both closings 4K

Option fee that came to me 4K

Rental income for 9 1/2 months 13k

Total invested 144k

Market value 185k

Loan $129,500, 20 year commercial loan at 5.12% 5 year adjustable rate.

41k in equity created with about 15k left into the property. 

Monthly cash flow $210.

If tenant exercises the option at the end of the 4 year option agreement, estimated profit will be 72k split between my daughter and me.

I did a similar deal with my son in the same neighborhood as the house with my daughter.

Total profit with him at the end of the 4 years is estimated to be 59k with 24k left into the property. Monthly cash flow $240 a month.

The last deal is with my oldest daughter. The total profit at the end of the 4 years split between her and I is estimated to be 63k with 24k left into the property and $420 a month in cash flow (I don’t have a good picture with her infringe of the house).

let me know if you have any questions. I’m happy to share more about the process.

[Shiloh Lundahl]

@Jason Leavitt 

Why do people do lease options? Often times people are attracted to lease options because they are tired of being renters and they want to own their own home but can not qualify for a mortgage right now. So they are willing to buy an option to purchase the property and they are willing to pay a little more for the property per month for that privilege.   

How is the lease option structured and what are the benefits to you? We create a lease agreement and a separate option agreement. The lease is just a regular lease, however, there is a subsection that says that the leasee gets $100 monthly discount on the rent to take care of the property repairs. The option agreement, which we usually charge $3900 for, states the cost or the contract price for the property within a specified period of time (usually 3, 4, or 5 years). They can live in the property and customize it to themselves as long as it increases the value of the property until they are able to finance the property within the option timeframe.  We do lease options for several reasons but the primary reason is because the lease option model creates 3X or more profit for us as investors.

Is the option a set price? We write it at a set price; usually 5-10% above market value.

Is it difficult to find tenants interested in this? Not really. We advertise on the MLS which gets sent out to multiple websites. We get calls often for lease option properties. Sometimes we can lease option a property out even before the property is finished. But sometimes it can take us up to 2-3 months to lease option the property.

What if market conditions change dramatically over the four years (prices drop, the tenant doesn’t exercise the option and you keep the fee? If the market changes or if the leasee decides not to exercise the option, then we get the property ready to lease option it again and we collect another option fee, or we can decide to just rent it out until the market comes back and then we can lease option it again.